10-QPeriod: Q1 FY2018

TEXAS INSTRUMENTS INC Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 3, 2018For Securities:TXN

Summary

Texas Instruments Inc. (TXN) reported strong first-quarter 2018 results, demonstrating significant year-over-year growth in revenue and profitability. Revenue increased by 11% to $3.79 billion, driven by robust demand in the Analog and Embedded Processing segments, particularly within the industrial and automotive markets. Net income rose substantially to $1.37 billion, translating to diluted Earnings Per Share (EPS) of $1.35, a notable increase from $0.97 in the prior year period. This performance underscores the effectiveness of TI's business model, characterized by manufacturing efficiency, a broad product portfolio, and a strong market reach. The company also highlighted its commitment to shareholder returns, with $5.1 billion returned to owners through stock repurchases and dividends over the trailing twelve months. Free cash flow generation remains a key strength, with a 17% increase year-over-year to $4.9 billion, representing 32.1% of revenue. TI's financial position is solid, supported by substantial cash and short-term investments and an undrawn revolving credit facility, positioning the company for continued operational and financial success.

Financial Highlights

53 data points
Beta

Revenue

$3.79B

64.6% Gross Margin

Net Income

$1.37B

36.1% Net Margin

EPS (Diluted)

$1.35

Total Assets

$17.51B

Cash & Equivalents

$1.72B

Free Cash Flow

$923.00M

Financial Statements
Beta
Revenue$3.79B
Cost of Revenue$1.34B
Gross Profit$2.45B
R&D Expenses$385.00M
SG&A Expenses$433.00M
Operating Income$1.55B
Net Income$1.37B
EPS (Basic)$1.38
EPS (Diluted)$1.35
Shares Outstanding (Basic)983.00M
Shares Outstanding (Diluted)1.00B

Key Highlights

  • 1Revenue surged 11% year-over-year to $3.79 billion, driven by strong demand in Analog and Embedded Processing segments, especially in industrial and automotive markets.
  • 2Net income increased significantly to $1.37 billion, with diluted EPS rising to $1.35 from $0.97 in the prior year.
  • 3Gross profit margin improved to 64.6% from 63.0% year-over-year, reflecting higher revenue and lower manufacturing costs.
  • 4Operating profit margin expanded to 40.9% from 36.8%, showcasing operational efficiency.
  • 5Free Cash Flow (FCF) grew 17% to $4.9 billion for the trailing twelve months, representing a healthy 32.1% of revenue.
  • 6The company returned $5.1 billion to shareholders via dividends and stock repurchases over the past 12 months, consistent with its capital return strategy.
  • 7Texas Instruments adopted new revenue recognition standards (ASC 606) effective January 1, 2018, which resulted in a $206 million increase to retained earnings, primarily impacting royalty income recognition.

Frequently Asked Questions

Revenue growth was primarily driven by increased demand for Texas Instruments' Analog and Embedded Processing products, particularly in the industrial and automotive sectors. Higher revenue from these segments, coupled with improved manufacturing costs, led to a 11% year-over-year increase in total revenue.

Texas Instruments adopted ASC 606, 'Revenue from Contracts with Customers,' on January 1, 2018. This adoption resulted in a $206 million increase to retained earnings, net of taxes, due to changes in how royalty income from patent licensing agreements is recognized. Specifically, income from fixed-rate royalty agreements is now recognized more heavily at contract execution rather than ratably over the agreement's life, accelerating revenue recognition.

Texas Instruments' capital management strategy is focused on returning all of its free cash flow to shareholders. This is achieved through a combination of dividends and stock repurchases. In the trailing twelve months, the company returned $5.1 billion, with dividends representing 45% of free cash flow, indicating their sustainability and importance to the strategy.

The Tax Cuts and Jobs Act (TCJA) enacted in late 2017 had a significant impact. For the first quarter of 2018, the company's provision for income taxes decreased compared to the prior year, partly due to a lower U.S. statutory corporate tax rate and other net benefits resulting from the TCJA. The company recorded discrete tax benefits of $129 million in Q1 2018, including $45 million related to updated estimates for the TCJA. The company is still completing its accounting for the full effects of the TCJA.